Enron case was much bigger than FBI agent first thought

When Mike Anderson launched the FBI’s investigation of Enron’s collapse in early December 2001, he thought assigning a couple of agents to the case would be a good start.

“I knew it was going to be a big case,” said Anderson, assistant special agent in charge of the white-collar crime group in Houston. “But I think I was a little naïve about how big.”

Within a few weeks, the investigation had exploded into a national task force with dozens of agents, prosecutors and other specialists working on it from coast to coast.

“It was the biggest FBI investigation at the time and remains one of the most complex in the history of the bureau,” Anderson said.

The investigation started off looking at three areas: the LJM partnerships that Enron Chief Financial Officer Andrew Fastow created to help Enron move assets off the balance sheet; the way the energy trading business’s reserves were used to cover losses in other units; and possible insider trading.

‘No smoking gun’

Over time, new areas of interest popped up as investigators dug deeper and more witnesses came forward to talk, Anderson said. But it was never simple.

“There was no smoking gun in this case,” Anderson said. “It was more subtle. They didn’t get in a room and say, ‘You do this, you do that, and this is how we’ll cook the books.’ ”

There were many twists and turns in the investigation, but Anderson remembers particularly potent testimony came from Ben Glisan – the former treasurer who pleaded guilty to a single charge and later testified in the trial of top executives Ken Lay and Jeff Skilling – and David Delainey, the former Enron Energy Services executive.

Anderson boils down the problems at Enron to four issues: overly aggressive accounting that reported financial results Enron had not achieved; a corporate culture that gave too much leeway to youth over experience; leadership failures; and a flawed business model that believed Enron could enter any market it wanted to and become the dominant player.

The company’s accounting techniques generally weren’t illegal, Anderson said, but they were aggressive.

“When you use the techniques to report results you really didn’t achieve, that’s when it becomes fraud,” Anderson said. “When the financial statements so grossly diverge from the true economic condition of the company, that’s fraud.”

In time, criminal intent

Most of the people who worked at Enron were hardworking people who were doing the right thing, Anderson said.

“Of the people that were convicted, I think none of them went to work thinking they were going to commit fraud. But did they eventually have criminal intent? Yes.”

The FBI continues to make corporate crime a priority, Anderson said. The fiscal year that ended in September saw the most indictments and convictions in the history of the bureau’s corporate fraud section.

“I’m hopeful that we demonstrated to Wall Street and business executives that we will hold people accountable for their actions,” Anderson said.”

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.